VAT Notes January 2012

Zero-rating of ‘extra care accommodation’

HMRC issued Business Brief 47/11 clarifying the VAT liability of construction and first sale or long lease of dwellings that are linked to a separate provision of care (extra care accommodation). This refers to self-contained flats, houses, bungalows or maisonettes that are sold or let (long lease) with the option for the occupant to purchase varying degrees of care as and when they arise.

Some planning authorities will apply different ‘use classification’ to extra care accommodation. However, HMRC have stated that regardless of Use Class they will accept zero-rating for the first sales or long leases of dwellings with extra care when all the usual standard conditions are met for the sale to be treated as the first sale or long lease of a new dwelling.

Should you be involved in the construction and sale of dwellings linked with extra care accommodation and wish to discuss this further please contact your usual partner.

Cost Sharing – update

We are closely involved in continuing discussions with HMRC concerning the required implementation of the exemption from VAT for cost sharing arrangements.

Legislation will be introduced in the Finance Bill 2012 to implement the costs-sharing exemption into UK Law.

This will allow for any providers of exempt supplies (including charities, Housing Associations, education and the insurance and financial sectors) to share costs without incurring irrecoverable VAT.

There will be criteria to allow for cost-sharing arrangements to be exempt from VAT, including the need for a separate entity to be set up.

There is also the fundamental point that is continuing to be discussed with HMRC concerning the term:

The services supplied by the group to its members must be ‘directly necessary’ for the members’ exempt and/or non - taxable supplies.

Employee and IT costs are likely to be included as main costs in any cost sharing groups, or currently outsourced activities, but there is continuing doubt as to whether HMRC will accept these costs can be ‘directly necessary’ for members benefitting from the cost sharing group. This is a particularly important point, but as HMRC are aware this will result in a large amount of lost VAT for the Revenue, they are seeking to limit the extent of this.

It is also likely that the requirement for a separate cost sharing entity and other criteria will mean that certain smaller charities and wholly or partially exempt entities will find the criteria restrictive and costly.

HMRC have also confirmed that where entities consider they have been operating a cost sharing arrangement that will meet the likely criteria that they will consider claims being submitted for past VAT accounted for within the last 4 years.

Should you wish to discuss this further please contact your usual Beavis Morgan partner.

Salary sacrifice schemes – update

With effect from 1 January 2012 VAT will be due on salary deduction and sacrifice schemes on the amount deducted from an employee. If the amount charged or deducted is less than cost to the employer VAT will be due on the cost value.

Input tax continues to be recoverable for the employer in line with its taxable status, so those entities that are partially exempt will have increased irrecoverable VAT.

The changes do not apply to salary sacrifice arrangements that were already in place on or before 27 July 2011 for which the term extends beyond 1 January 2012 until the arrangements are reviewed (i.e. annual salary and package review) or a fixed term arrangement (agreed on or before 27 July 2011) expires.

Employers should remember no VAT is due on supplies that themselves are exempt from VAT; for example:

  • Nursery vouchers;
  • Pension contributions; and
  • Supplies on which VAT has not been claimed by the business.

VAT will not be due on supplies made to employees for which there is no charge, deduction or sacrifice made, such as subsidised or free meals when they are made available to all employees.

Should you wish to discuss VAT and your salary deduction or sacrifice schemes please contact us.

HMRC – faster payments

From 16 December 2011 HMRC will accept faster payments made using the electronic Faster Payments Service. This means payments can be processed on the same or next day.

However, before considering this will provide for an extra day or two before HMRC require payment for VAT a business must check with their bank to confirm:

  • the service is available to you:
  • whether there are single transaction or daily limits on the amount that can be paid; and
  • the latest cut off times for making a payment.

VAT and storage facilities

The VAT liability of the provision of storage facilities has yet again been the subject of another VAT Tribunal.

UK storage Company Ltd owns the freehold or premises of a concreted compound surrounded by a security fence and monitored 24 hours a day. In the compound are 300 individual storage units. Each self-contained unit is fully enclosed with a base and a roof.

However, as the units are moveable (although once in place they are not generally moved) and not fixed to the ground HMRC unsurprisingly argued that provision of supply was one of storage facilities and subject to VAT at the standard rate.

The company appealed on the basis the supply of the units was a supply of buildings forming part of the land on which they are installed following prefabrication and so exempt from VAT as no option to tax had been made. The customer has the keys and only they have access to the units.

The Tribunal agree with the appellant that the supply were exempt from VAT as licences to occupy land.

There was a similar case before this one that also found the supplies of storage units to be exempt supplies of land. However, in this case HMRC have appealed to the Upper Tribunal. This means that there will a precedent created when judgement is made in this case.

Should you wish to discuss the supplies of storage units please contact your usual Beavis Morgan partner.

Further removal of extra statutory concessions

In accordance with the program to remove most extra statutory VAT concessions, HMRC have announced the following will be removed with effect from 1 January 2012:

  • The concession allowing zero-rating for the first time connection to the gas or electricity mains supply for dwellings, communal residential and non-business charitable buildings, residential caravans and houseboats.

However, charges made by caravan site owners and houseboat mooring providers for first time connection to electricity, gas, water and sewerage will be the subject to the same VAT liability as the caravan pitch or mooring (standard rate or exempt, depending upon the circumstances) unless the site owner or mooring provider can identify the actual consumption of users (i.e. through meters), in which case the connection charge will be subject to the same VAT liability as the supply of the utility (reduced rate for electricity and gas, zero-rate for water sewerage).

  • The concession allowing a VAT registered business to zero-rate the supply of a sail away boat to a UK resident who intends to keep it outside the European Community.

However, please note that businesses can zero-rate the supply of a boat to a UK resident provided they either undertake to export the boat themselves or they make all the arrangements for the export.

  • The concession allowing caravan site owners to treat the recharge of business rates as a supply outside the scope of VAT.

This means that with effect from 1 January 2012 the recharge of business rates by caravan site owners will follow the same VAT liability as the rental of the caravan pitch (usually standard rated). This does not affect caravan occupiers who pay council tax.

  •  The concession allowing caravan site owners to zero-rate water and sewerage charges where actual consumption cannot be identified.

Charges will remain zero-rated if actual consumption can be identified (i.e. through metering). In other circumstances, charges will follow the VAT liability of the caravan pitch (exempt, if a permanent residential site, standard rated if a seasonal site).

  • The concession allowing the zero-rating of a motor vehicle supplied to a disabled wheelchair user if the vehicle is adapted shortly after it was supplied to the disabled person.

Zero-rating will remain for those vehicles adapted before the vehicle is sold provided all other qualifying conditions for zero-rating are met.

Hot food take-away

Claims are continuing to be submitted to HMRC for VAT accounted for on certain types of food sold as hot take-away food for the past 4 years, when they could have been provided at the zero-rate of VAT.

We are assisting various providers of hot take-away food to submit claims.

Should you wish have a preliminary discussion on the types of food that would suitable for considering a past VAT claim please contact your usual Beavis Morgan partner.